Mario Kart Arcade GP 2 is a follow-up to Mario Kart Arcade GP. It is the second game in the Arcade series and the seventh overall. The game has custom karts for characters, similar to Mario Kart: Double Dash!! and Mario Kart DS. It contains virtually all the content of the original, but greatly expands it with the addition of several new courses, items and racers. Like the predecessor, Pac-Man characters appear as playable in this game. The game also introduces Mametchi as a playable character. In-game, it appears to be broadcast live and has color-commentary of the player by a narrator, whose language depends on the region of the game.

First, players can adjust their seat within the time limit by moving a lever near their feet and sliding to any position on the arcade machine. After that happens players can choose a character to play as. Then, players can take a picture of themselves within the time limit; if the player does not take the picture, a countdown starts to force the player to take it. On some instances, the camera cannot be used. The picture of the current character is instead used.

When the race starts, the players' object is to finish in 1st place. If they get a lower place, they must retry to unlock the course by giving the game certain money or some tokens. If players get 1st place, they can continue if they pay the game another token or dollar(s). If not, the game is over.

The player can get a rocket start when the accelerator is pressed right when the "1" is displayed. If successful, the kart gets a small speed boost when the race starts. The method of performing the rocket start closely resembles the one from Mario Kart: Double Dash!!.

In Grand Prix, the player races against computer drivers for winning the trophies in every race. There are three engine levels available: 50cc, 100cc and 150cc, and as with previous Mario Kart installments, is linear with the difficulty. 50cc being the slowest (Easy), 100cc being the standard (Normal) and 150cc being the fastest (Hard). There are 4 difficulty levels, and each one has two stages. Each cup has 2 tracks, separated into 4 rounds. The first 2 rounds are the tracks in normal conditions, and the last 2 rounds the same tracks in different conditions (time of day, weather, etc.). After having completed each round, the player receives a challenge, similar to the Mission Mode that appears in Mario Kart DS. Extra mode makes a return, only under the name of Special Cup.

Mario Coins are coins that the player can pick up in Mario Kart Arcade GP 2. If the player gains enough Mario Coins and regular Coins, he can unlock prizes to save on his Mario Card (e.g. new karts, special items).

Mario Kart Arcade GP 2 doesn't feature the normal cube item boxes seen in previous games; it comes with multi-coloured, hexagonal item boxes. They have a white question mark while Fake Item Box have a white, upside-down question mark. When taken, they instantly regenerate, unlike other Mario Kart games, in which they take a while.

Unlike in the typical Mario Kart games, items are grouped into these categories: locking-on, passing the item, dropping backward, and shooting forward. Locking-on item involves a moving cursor that stops if it goes over an opponent. If the cursor is locked-in for enough time, the cursor flashes red and the thrown item locks into the player, similar to a Red Shell. Passing items require the item to be thrown, much as a locking-on item. Afflicted players need to collide with other players to evade the hindering effects. Items that drop backward and items that shoot forward act similarly to items in the traditional Mario Kart games.

Unlike in most Mario Kart games, these items can be thrown in only one direction. Also unlike most Mario Kart games, only certain items appear during a race. Three of them are shown before the race starts. Most of these items have a temporary after-effect that can hinder the affected driver.

All playable characters from Mario Kart Arcade GP return along with two new characters, Waluigi and a Tamagotchi named Mametchi. They all have two karts available: a standard go-kart and a personal kart that increases speed, but reduces acceleration.

Mario Kart Arcade GP 2 features 'faces'. These are the borders around the players face when the player gets their photo taken. Players can also get special, character specific faces if they choose to play as that character. If no picture is taken, then the default face shows the character's mugshot.